G20 ministers focus on tax evasion, stimulus measures

July 22 2013

The Moscow Times

Irina Filátova

The G20 financial ministers pointed out in the communique that they “remain mindful of the risks and unintended negative side effects of extended periods of monetary easing.” Source: RIA Novosti / Grygory Sysoev

The fight against
tax evasion by multinational corporations and measures to ensure
recovery amid the global economic turbulence came into the limelight
at the two-day meeting of Group of 20 finance ministers that
finished in Moscow on Saturday.

Finance ministers
and central bank governors of the world's 20 biggest economies agreed
to focus on boosting employment and economic growth
and continue the policy of monetary support where needed,
according to the closing communique from the meeting.

“The global economy
remains too weak and its recovery is still fragile and uneven.
Unemployment remains excessively high in many countries,”
the communique said. “Strengthening growth and creating jobs remain
our priority, and we are fully committed to taking decisive actions
to return to a robust, job-rich growth path.”

To make that growth
possible, the officials agreed to develop an action plan
to be presented at the summit of the G20 leaders
in September. The plan will include “a comprehensive series
of structural reforms that will increase productivity, labor force
participation and employment,” the communique said.

Among such reforms is
a major tax move proposed by the Organisation for Economic
Cooperation and Development and aimed at increasing
the transparency of taxation systems globally.

At the request
of the G20 finance ministers, the OECD developed a plan that
the organization said marks a “turning point in the history
of international tax co-operation” and is expected to benefit
countries like Russia, which impose relatively high taxes.

The initiative,
presented by OECD Secretary General Angel Gurria on Friday, won high
praise from G20 financial officials and will be submitted to G20
leaders for approval in September.

“It's a specific
action plan that our countries should implement to minimize the scale
of tax evasion by major taxpayers,” Russian Finance Minister Anton Siluanov told a news conference Friday.

In an extensive
plan to be enforced within the next two years, the OECD outlined
15 specific steps to prevent tax evasion by big international
companies. “International tax rules, many of them dating from the
1920s, ensure that businesses don't pay taxes in two countries —
double taxation. This is laudable, but unfortunately these rules are now being
abused to permit double non-taxation,” Gurria said in a statement.

He pointed out that
the OECD's plan aims to ensure that multinational corporations “pay
their fair share of taxes.”

Among the steps
envisaged by the plan are requiring multinationals with operations
abroad — like Google, Starbucks and Apple — to pay local
taxes on any profit they get from sales in an overseas country
and provide tax authorities with a breakdown of profit, sales
and taxes in every country of presence.

The plan also calls
for a more effective mechanism of dispute resolution and tougher
legislation regulating the activities of companies' offshore
subsidiaries, which often accumulate the entire profit with no taxes being
levied on it.

The measures were
revealed just a day after Google faced accusations of long-standing
tax evasion in Russia. Federation Council member Ruslan Gattarov claimed
last week that the Internet giant violated the country's tax law by carrying
out financial transactions with some local entities bypassing its Russian
subsidiary. The company denied the allegations, Itar-Tass reported.

In its plan,
the OECD proposed to develop international tax rules “to address
the gaps between different countries' tax systems.”

The recommendations
outlined in the plan are aimed at supporting countries offering high
tax regimes, like Germany or Russia, which are likely to benefit
from implementing the initiative, said Mikhail Filinov,
a partner responsible for international tax structuring services
at PwC in Russia.

At the same time,
they put pressure on countries with low tax regimes, like Cyprus
and Luxembourg, which contribute to unfair tax distribution globally,
Filinov said.

The Finance Ministry
and Federal Tax Service could take into account the OECD's
recommendations and include them into the guidelines of the
country's tax policy for 2014, he added.

“Great plan,” Siluanov
said. He added, however, that its implementation in each specific country
remained at issue. He called for the initiative to be
enforced globally since its implementation in one country or a small
group of countries was unlikely to yield results.

To make
the effort efficient, the countries might sign multilateral
agreements on preventing double taxation rather than amending existing
bilateral documents, Siluanov said.

Gurria pointed out that
there are a total of 4,000 bilateral agreements on the subject
at the moment. “The question is how long it will take to review all
those agreements,” he added, Itar-Tass reported. He said the OECD might
draft an international convention to avoid amending thousands
of bilateral deals.

If the OECD plans
are realized, there will be a major change in international tax
planning both for taxpayers and tax professionals, Filinov said.

“For the first
time, countries agreed on a joint plan to track tax regulation issues
beyond their own borders and take into account the peculiarities
of other tax systems while setting their own regulations,” he said.

The other key issue
that was in focus at the meeting of the G20 finance ministers
was the quantitative easing policy, which is being pursued by the
countries' central banks to stimulate economic recovery.

Siluanov pointed out
that wrapping up monetary stimulus measures amid economic stagnation would be
premature. The quantitive easing policy involves purchases
of government securities by central banks to increase
the money supply.

“Quantitative easing is
justified amid economic stagnation, it doesn't even lead to higher
inflation,” Siluanov said.

His comments appeared
after indications by the U.S. financial authorities that the country
might soon start wrapping up its quantitative easing program triggered
a sell-off on emerging markets.

The G20 financial
ministers pointed out in the communique that they “remain mindful
of the risks and unintended negative side effects of extended
periods of monetary easing.”

“Future changes
to monetary policy settings will continue to be carefully calibrated
and clearly communicated,” the document said.

Meanwhile, Siluanov made
it clear that a possible wrap-up of the monetary stimulus program was
not on the agenda at the moment. “There's no recipe for wrapping
it up tomorrow or the day after tomorrow or easing it a bit.
Everything will depend on the situation.”